DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
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MINISTRY OF PLANNING AND INVESTMENT FOREIGN INVESTMENT AGENCY DOING BUSINESS IN VIETNAM 2020 Investing in Vietnam, Engaging the world
Abbreviation 3 II. Customs Duty and Procedures 52 Introduction 5 III. Land Rental Incentives 56 A. Country Profile 6 E. Human Resources and Employment 58 B. Trade and Investment 12 F. Foreign Exchange Control 65 I. Trade Agreement 13 Useful websites 68 II. Foreign Direct Investment 13 Deloitte Vietnam 71 C. Setting up an investment in Vietnam 17 Foreign Investment Agency 72 D. Taxation and Customs 25 I. Taxation 26 2 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
ABBREVIATION APA Advance Pricing Agreement FTA Free Trade Agreement APEC Asia-Pacific Economic Cooperation GDP Gross Domestic Product ASEAN Association of Southeast Asian GSO General Statistics Office Nations BCC Business Cooperation Contract IMF International Monetary Fund BLT Build-Lease-Transfer IRC Investment Registration Certificate BOO Build-Own-Operate IP Industrial Park BOT Build-Operate-Transfer M&A Mergers & Acquisitions BT Build-Transfer O&M Operate & Manage BTL Build-Transfer-Lease OECD Organization for Economic Cooperation and Development BTO Build-Transfer-Operate PIT Personal Income Tax CIT Corporate Income Tax PPP Public-Private Partnership CPTPP Comprehensive and Progressive RCEP Regional Comprehensive Agreement for Trans-Pacific Economic Partnership Partnership DTA Double Taxation Avoidance SST Special Sales Tax Agreement EPE Export Processing Enterprise USD US Dollar EPZ Export Processing Zone VAS Vietnamese Accounting Standards ERC Enterprise Registration Certificate VAT Value Added Tax EZ Economic Zone VND Vietnamese Dong FCWT Foreign Contractor Withholding Tax WTO World Trade Organization FDI Foreign Direct Investment 3
INTRODUCTION I n more than 30 years of social- a centralized to a market oriented economy and its 96.92 million-strong Vietnam has moved from being population, which features a large one of the poorest nations in the world and young workforce as well as to a lower middle-income country an increase in disposable income with a number of convincing social- in recent years. The Vietnamese economic achievements. Joining the Government has done an excellent job Association of Southeast Asian Nations (ASEAN) in 1995 Economic Cooperation (APEC) in 1998 2.79 percent (2019). and the World Trade Organisation (WTO) in 2007; expanding gross This guidebook was prepared by the domestic product (GDP); improving Foreign Investment Agency of infrastructure; and a steady increase Vietnam in cooperation with Deloitte in foreign direct investment (FDI) Vietnam to provide readers with an suggest that Vietnam has transformed overview of the investment climate, into an attractive investment forms of business organization, destination. taxation, and business and accounting practices in Vietnam. Although we do Vietnam has been enjoying strong our best to ensure that information economic growth. Since 1990, contained in this book is current at the time of writing, the rapid changes Vietnam’s GDP per capita growth has in Vietnam mean that laws and been among the fastest in the world, regulations may change to reflect the averaging 6.4 per cent a year in the new conditions. We hope that you 2000s. Despite crisis and uncertainties find this book useful in your endeavour in the global environment, Vietnam’s to expand your business in Vietnam. economy continues to grow, with GDP expanding by 7.02 per cent in 2019, Ministry of Planning and and is expected to continue on this path. Investment of Vietnam Foreign Investment Agency Overseas businesses are increasingly attracted by the country’s move from 5
A COUNTRY PROFILE COUNTRY PROFILE Vietnam’s economy continues its fast growth driven by free trade agreements (FTAs) with major developed countries and increasingly deregulated business environment. VIETNAM Strategically located at the centre of Southeast Asia with convenient access to commodity and cultural exchange. A stable political A youthful and vibrant environment, and an country with digitally-savvy attractive business environment with and well-educated workforce, high incentives for a developing culture of foreign investors. entrepreneurship, and openness to new ideas. Competitive production cost compared to Fast growing economy with neighboring countries. GDP growth projected to be between 6% to 7% during 2016-2019 period. 16 FTAs with major developed markets. 6 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
COUNTRY SNAPSHOT LOCATION POPULATION AND WORKFORCE Southeast Asia Population: was estimated at 96.92 million people The country borders with China, Laos, Cambodia, Ranked 15th in the list of most populated countries Pacific Ocean and Gulf of Thailand People of working age in employment: 48.7 million people (51.2% of total population) Unemployment rate: 2% LAND AREA 330,967 sq. km ECONOMY Nominal GDP ( 2019): USD 261.9 billion GDP in 2019 increase by 7.02%, COASTLINE the highest growth since 2011 3,260 km GDP per capita (2019): USD 2739.82 5 MUNICIPALITIES & 58 PROVINCES LANGUAGE North: Hanoi – the capital Vietnamese (official language) Centre: Da Nang City English (taught widely at school as a second language) South: Ho Chi Minh City – the largest city CLIMATE AND WEATHER BUSINESS HOURS The climate varies from North to South with three Under the Vietnamese Labor Code, normal working hours should be 8 hours/day, or 40 - 48 hours/week. distinctive climate zones: tropical in the South (rainy season from April to September; dry season from October to March); monsoonal with hot and rainy season in the Centre and North (May to September); cold and damp in the highlands and the North (October to March). It is also blessed with plenty of sun throughout the year. CURRENCY Vietnamese Dong (VND) Source: General Statistics Office (GSO), Economist Intelligence Unit 7
POLITICAL STRUCTURE Vietnam is a socialist country under the leadership of the Communist Party of Vietnam. The 14th National Assembly of Vietnam (term 2016-2021) has 489 Assembly, which is the highest-level representative body of Vietnamese people, has the power to exercise constitutional and legislative rights and to decide on critical issues of the country. 8 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
GDP BY SECTOR, 2018 8.0% 7.5% Product tax (net) 7.08% Agriculture, 7.0% 7.02% 10% Forestry and 6.81% Fishery 6.5% 6.68% 15% 41% 6.21% 6.0% 5.98% Services 5.5% 5.42% 34% 5.0% Industry & 4.5% Construction 4.0% 2018 2019 RETAIL SALES (billion USD) 6.60% 250 173 195 168 4.09% 200 140 154 3.53% 3.54% 125 111 2.79% 150 2.66% 100 50 0.63% 0 2018 2019 2018 2018 MAIN EXPORT PARTNERS, 2018 (share of total) Germany 11% US 46% South Korea 16% 243 237 214 211 180 173 150 148 162 166 132 131 Japan 18% China 40% 2018 Source: GSO 9
A COUNTRY PROFILE REGULATORY REFORM TO IMPROVE INVESTMENT CLIMATE The regulatory framework has been constantly revised to incorporate more favorable regulations for businesses to invest and operate in Vietnam. Since the new Law on Investment and the new Law on Enterprises were passed in 2014, many other laws, decrees and circulars have been put in place to provide guidelines for better market access. VIETNAMESE GOVERNMENT’S EFFORTS TO IMPROVE INVESTMENT CLIMATE - Law No. 67/2014/QH13 on Investment - Law No. 68/2014/QH13 on Enterprises 2014 - Decree No. 46/2014/ND-CP provides regulations on collection of land rent and water surface rent - Circular No. 78/2014/TT-BTC guides the implementation of the Law on CIT - Circular No. 103/2014/TT-BTC provides guidelines for fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam - Decree No. 118/2015/ND-CP provides guidelines for some articles of the Law on Investment - Decree No. 96/2015/ND-CP provides guidelines for some articles of the Law on Enterprises 2015 - Decree No. 15/2015/ND-CP on investment in the form of public-private partnership - Circular No. 38/2015/TT-BTC on customs procedures, customs supervision and inspection, export tax, import tax, and tax administration - Law No. 107/2016/QH13 on Export and Import Duties - Decree No. 134/2016/ND-CP provides guidelines for the Law on Export and Import Duties 2016 - Circular No. 83/2016/TT-BTC guides the implementation of investment incentive programs - Circular No. 130/2016/TT-BTC on guidelines on some articles of the Law on Value Added Tax, and the Law on Special Sales Tax - Law No. 04/2017/QH14 about provision of assistance for small and medium-sized enterprises (coming into force 2017 from January 1st, 2018) - Decree No.32/2017/ND-CP on state investment credit - Decision No. 3610A/QD-BCT slashes 675 conditions on business and investment under state management - Decree No. 119/2018/ND-CP on electronic invoices for sale of goods and provision of services - Decree No. 09/2018/ND-CP on trading activities of foreign investors 2018 - Decree No. 08/2018/ND-CP on business conditions under State management of the Ministry of Industry and Trade - Circular No. 25/2018/TT-BTC on amendments of some articles of Circular 78/2014/TT-BTC and Circular 111/2013/TT-BTC - Resolution No. 50/NQ-TW on the direction of completing institutions and policies, improving the quality and efficiency of foreign investment cooperation by 2030 - Resolution 23-NQ/TW on the national industry development strategy during 2018-2030 - Amended Law on Tax Administration No. 38/2019/QH14 (effective from 1 July 2020) 2019 - Decree No. 14/2019/ND-CP providing guidelines for the law on special sales tax - Decree No. 05/2019/ND-CP provides a legal framework for the establishment and implementation of Internal Audit - Circular No. 48/2019/TT-BTC on the making and settlement of provisions for devaluation of inventory, losses of financial investments, bad debts and warranty at enterprises - Draft amended Laws on Investment/Enterprises/Securities 10 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
RESTRUCTURING AND EQUITISING STATE-OWNED ENTERPRISES The Vietnamese Government upholds its commitments to economic reform. The equitisation of state-owned enterprises (SOEs) in recent years is an example economy forward. The 2016-2020 roadmap for the equitisation of SOEs has been outlined in Decision No. 58/2016/QD-TTg. 220 NUMBER OF EQUITISED SOES DURING 2011-2018 175 73 55 45 26 23 14 2011 2012 2013 2014 2015 2016 2017 2018 Source: Vietnam Government Report on the equitisation of SOEs (2011-2018) 11
TRADE AND INVESTMENT 12
Bilateral agreements - Vietnam – Chile - Vietnam – South Korea - Vietnam – Japan - Vietnam - Eurasian Economic Union FTA - Vietnam – EU FTA (not yet effective) - Vietnam – Israel (in negotiation) - Vietnam – EFTA (in negotiation) Vietnam has established diplomatic I. TRADE AGREEMENT relations with 185 countries, expanded Vietnam has been actively engaging commercial and investment relations in a number of free trade agreements with more than 220 markets and signed to help accelerate the country’s more than 80 Double Tax Avoidance integration into global economy in Agreements. recent years. Key trade pacts include: II. FOREIGN DIRECT INVESTMENT ASEAN Economic Community According to the Foreign Investment (launched in December 2015) Agency under the Ministry of Planning and Investment, the total newly Comprehensive and registered, adjusted capital, capital Progressive Agreement for Trans- contributed and shares purchased by foreign investors reached 38.2 billion USD, (signed on March 8th, 2018) increase 7.2% as compare to the same period in 2018. The realized capital of Regional Comprehensive foreign direct investment projects was Economic Partnership (RCEP) estimated at 20.38 billion USD, up 6.7% (on-going negotiation) as compared to the same period in 2018. Higher FDI disbursement throughout the years implies the improvement in Free trade agreements signed as an investors’ confidence in the economic ASEAN member country outlook and their commitment to - ASEAN - Japan establish long-term investments in - ASEAN - South Korea Vietnam. - ASEAN - India - ASEAN - China Vietnam is one of the only few countries - ASEAN - Hong Kong in the region that allows 100% foreign - ASEAN - Australia - New Zealand ownership for most sectors. 375 SOEs will be partially or wholly divested during 2017-2020 period. 13
B TRADE AND INVESTMENT INVESTMENT INDUSTRIES Vietnam has become an attractive Real Estate: The investment in real investment destination for various estate sector accounted for 10 per sectors, from manufacturing, 2018. Ho real estate, energy, retail, and Chi Minh City stands out as the hub construction, to arts, tourism, to attract most of the large-scale real entertainment, and other services. estate projects. Manufacturing: With advantages Other sectors: Green energy, in a number of areas such as science & technology, wholesales, competitive labor cost, raw and infrastructure development are materials resources, lower entering a booming period, as the barriers to trade, and many Government has given these sectors designated investment incentives, priorities for development through the manufacturing sector remains incentives and encouragement to attract investors. Investment in these 2019, accounting for around 65 sectors is expected to increase in the years to come. REGISTERED AND DISBURSED FDI (2015-2019) FDI BY SECTOR (2019) 14% 4% 40,000 35,602 38,019 35,466 7% Million USD 30,000 26,891 24,115 10% 65% 20,380 19,100 20,000 14,500 15,800 17,700 10,000 0 2015 2016 2017 2018 2019 Manufacturing Real Estate Professional activities, Wholesale, Registered FDI Disbursed FDI science and technology Retail & Repair Others 14 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
MAIN EXPORT PARTNERS, TOP 10 FOREIGN INVESTORS BY REGISTERED CAPITAL (AS OF DECEMBER, 2019) 80,000 70,000 60,000 Invesment Capital 50,000 (million USD) 40,000 30,000 20,000 10,000 0 g s rea on ore an ina an nd mo a an d nd Ko gK ap Jap Ch Ta iw Isla Sa ail lla uth n g in Th Ho So Ho Sin Vir g tish Bri Source: Foreign Investment Agency Foreign investors usually select industrial parks (IPs)/economic zones densely populated cities with modern (EZs) where the infrastructure and infrastructure and agglomerated transportation are specialized, and convenience (e.g. Hanoi, Ho Chi special investment incentives are Minh City, Da Nang) to implement given. FDI capital invested at IPs and service-related projects. Whereas, EZs accounted for roughly manufacturing and processing 80% of total registered capital in investment projects are often located at manufacturing sector. 17 COASTAL ECONOMIC ZONES 326 INDUSTRIAL PARKS 3 HI-TECH PARKS – Hoa Lac Hi-tech Park – Saigon Hi-tech Park – Da Nang Hi-tech Park 15
B TRADE AND INVESTMENT M&A TRANSACTIONS HEAD TO BREAKTHROUGHS IN 2019 The Government is establishing mechanism and policies to facilitate the private sector to join the State-owned enterprises (SOEs) restructuring process through capital contribution and share purchase as well as enhancing linkages in value chain between the SOEs and the private sector. The value of M&A transactions increased from US$1.1 billion in 2009 to US$7.64 billion in 2018. The total value of transactions in the decade hit US$55 billion. However, the value of M&A transactions in the first half of 2019 leveled off at US$1.9 billion, equal to 53% of the same period last year. According to the statistics of the Foreign Investment Agency, under the Ministry of Planning and Investment, foreign investors spent US$2.64 billion to purchase shares. Positive factors are opening a new era for M&A activities in Viet Nam with a number of opportunities for breakthrough and making M&A become a crucial investment attraction channel in the time ahead. M&A market in Viet Nam expects strong developments in the issuance and realization of policies as well as connectivity, trade transactions and innovation of buyers and sellers. 16 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
SETTING UP AN INVESTMENT IN VIETNAM 17
C SETTING UP AN INVESTMENT IN VIETNAM ESTABLISHING A NEW Some main corporate BUSINESS ENTITY forms of doing business in Vietnam include: (1) Limited-liability company INVESTMENT VIA M&A with one or more members; (2) Joint-stock company; (3) Partnership; (4) Business OTHER FORMS OF INVESTMENT Cooperation Contract; and (i.e. participating in contractual business (5) Public-Private forms or purchasing stakes of an existing enterprise) Partnership Contract. LIMITED LIABILITY COMPANY A limited liability company is a legal entity established by capital contribution which is treated as equity (or charter capital) from its members. A limited ty Compa Liabili ny Established liability company is not allowed to issue ted mi by capital shares. The total number of members in Li contribution a limited liability company is restricted to 50 (applied to form of a limited liability company with more than two members). Maximum of Members of a limited liability company 50 members the limited liability company within the capital contributed – or undertaken to be Members are contributed - to the company. Not allowed liable for the nancial to issue obligations within shares A limited liability company may be the capital contributed established by foreign investors either in one of the two following forms: i. A 100% foreign-owned enterprise (where all members are foreign investors); or ii. A joint-venture enterprise with at least one Vietnamese investor. 18 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
JOINT STOCK COMPANY A joint stock company is a legal entity established by its founding shareholders on the basis of their subscription of shares of the joint stock company. Established by its founding The charter capital of a joint stock company is shareholders on divided into shares and each founding shareholder p any the basis of their holds a number of shares corresponding to their Com subscription of subscribed and paid-up shares in the joint stock ck shares Joint Sto company. At least three shareholders A joint stock company is required to have at least (with no maximum three shareholders (with no maximum number of number of shareholders). A joint stock company may take shareholders) the form of either (i) 100% foreign-owned; or (ii) a joint venture between foreign and domestic investors. PARTNERSHIP sh rtner ip Managing Pa partners have A partnership may be established between two unlimited liability for individual managing partners. The managing all obligations of the partners have unlimited liability for all partnership obligations of the partnership. Besides managing partners, a partnership may have contributing Contributing partners only liable obligations of the partnership up to the value obligations of the partnership up to their of their contributed capital. contributed capital BUSINESS COOPERATION A Business Cooperation Contract (BCC) is normally CONTRACT signed between foreign investors and Vietnamese Signed between investors in order to carry out certain business foreign investors and activities. ontract Vietnamese investors nC tio without the creation of a BCC is executed without the creation of a new legal new legal entity ness opera entity. Instead, parties to a BCC shall establish a co-ordination board to implement and oversee the Co BCC’s parties BCC. The investors to a BCC mutually agree on hold unlimited si allocation of responsibilities and sharing of Bu liability for the profits/losses arising from a BCC. BCC’s parties hold of the BCC unlimited liability for the financial obligations of the BCC. 19
C SETTING UP AN INVESTMENT IN VIETNAM A Public-Private Partnership (PPP) contract is PUBLIC-PRIVATE an investment form set up on the basis of a PARTNERSHIP contract between relevant government authorities and project companies to perform certain regulated infrastructure works and artnership public services, e.g. transportation system, eP vat Comprise BOT, water supply system, power plants, educational Pri BT, BTO, BOO, and healthcare-related infrastructure, etc. Public- BTL, BLT, O&M Contracts PPP Contracts comprise Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer- Set up Operate (BTO), Build-Own-Operate (BOO), on the basis of a contract Build-Transfer-Lease (BTL), Build–Lease- between relevant government authorities and project Transfer (BLT) and Operate-Manage (O&M) companies to perform certain Contracts. regulated infrastructure works and public services After signing PPP contracts with an authorized state agency, foreign investors must establish a project company in the form of a limited liability company or a joint stock company. PPP contracts clearly set out the rights and obligations of foreign investors to such contracts. 20
MERGERS AND ACQUISITIONS The legal framework for M&A is set out under the Law on Enterprise and Law on Investment and their guiding documents, which cover conditions, procedures and tax consequences of such activities. The Competition Law also has an effect on M&A activities. Where a merger or acquisition may result in a legal entity with a market share accounting for 30% to 50% of the relevant market, the legal representative of such entity must notify the competition management body before the merger/acquisition is implemented, unless the law provides otherwise. A merger or acquisition that results in a new entity with its market share accounting for more than 50% of the relevant market is prohibited, unless otherwise stipulated in the Competition Law. Other investment forms All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnamese Dong via an indirectly-invested capital account opened at a permitted bank. Balances in indirectly-invested capital accounts of foreign investors cannot be converted into time deposits, or saving deposits at credit institutions and foreign bank branches. Below are examples of frequently-conducted indirect investment activities in Vietnam. Capital contribution, sale/purchase Capital contribution, transfer of of shares or contributed contributed capital in securities capital in Vietnamese enterprises investment funds and fund without directly participating in management enterprises in accordance the enterprise management and with the laws on securities administration Sale/purchase of other valuable Sale/purchase of bonds and other papers in Vietnamese dong types of stocks in the Vietnamese permitted to issue within Vietnam’s securities market territory by organizational residents 21
C SETTING UP AN INVESTMENT IN VIETNAM SETTING UP A NEW BUSINESS PROCEDURES FOR COMPANY SET-UP In order to legally carry out business activities in Vietnam, foreign investors must register their investment with the appropriate licensing authorities. Under the new Law on Investment and Law on Enterprises, foreign investors now go through two steps: PROCEDURES FOR NEW COMPANY SET-UP Step 1 Step 2 Step 3 15 days 3 days 5-7 days Location IRC ERC Public Selection Application Application Notification (*) The timeline for setting-up projects prioritized by national or provincial Government shall be shortened. (**) Please note that IRC is required only for investments by foreign investors or deemed-to-be foreign investors (i.e. companies with more than 51% of charter capital held by foreign ownership). PROCEDURES FOR BRANCH, REPRESENTATIVE OFFICE SET-UP Step 1 Step 2 Step 3 Step 4 7 days 5-7 days 5-7 days Location RO/Branch License Seal/Tax ID Public Selection Application Registration Notification 22 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
As part of the set-up procedures, various types of documents will be required depending on the type of company/business activities that is being set up, etc. All legal documents issued by overseas authorities must be translated into Vietnamese and must be validated by the Vietnamese Embassy in the home country of the investor. RELEVANT LICENSING AUTHORITIES CERTIFICATE IRC ERC Projects located INSIDE Provincial Management Board industrial zones, export of Industrial/ Economic Zones processing zones, high-tech zones & economic zones Provincial Department of Planning and Investment Projects located OUTSIDE Provincial Department of industrial zones, export Planning and Investment processing zones, high-tech zones & economic zones LIQUIDATION AND CLOSING BUSINESS The termination, liquidation, or dissolution, of an enterprise shall occur in the following circumstances: The operation period in the The dissolution is decided by company’s charter expires owners/ general partners/ board of without a decision on extension members/ shareholders Failure to maintain minimum required number of members Business Registration for 6 consecutive months without business conversion 23
C SETTING UP AN INVESTMENT IN VIETNAM The company shall be dissolved only when all debts and liabilities are settled and the company is not involved in any dispute at a court or arbitration body. The liquidation procedures generally take about 6 - 12 months, which normally Step 1 NOTIFICATION OF DISSOLUTION DECISION Business Registration Tax Authority Authority 7 days from approval date National Business Employees Registration Portal Step 2 TAX FINALISATION / TAX AUDIT & TAX CODE CANCELLATION 2-3 months Tax Authority Step 3 SUBMIT DISSOLUTION DOSSIERS & RETURN IRC/ERC 5 days Business Registration from debt clearance date Authority 24 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS D TAXATION AND CUSTOMS 25
I. TAXATION The Vietnamese tax system is comprised of the following: i. Corporate Income Tax (CIT); ii. Personal Income Tax (PIT); iii. Value Added Tax (VAT); iv. Foreign Contractor Withholding Tax (FCWT); and v. Other taxes (i.e. Special Sales Tax, Import & Export Duties, Natural Resources Tax, Property Tax, Environment Protection Tax, Business License Duty & Registration Fee). All taxes are levied at the national level. There are no local taxes. Please refer to the following pages for your further reading. Type of Tax Page Corporate Income Tax 28 Personal Income Tax 34 Value Added Tax 39 Foreign Contractor Withholding Tax 44 Other Taxes 51 Special Sales Tax 51 Environment Protection Tax 52 26 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS TAX COMPLIANCE TIMELINE NO. TAX TYPE/ TIME LIMIT MONTHLY QUARTERLY FINALIZATION 20 day of the following th 30 day of th 90th day from month the following quarter or calendar year-end date 1 Corporate Income Tax N/A (provisional payment only) 2 Personal Income Tax (*) (calendar year) 3 Value Added Tax (**) N/A 4 Foreign Contractor 10th day following the payment day; or 20th of the month Withholding Tax following the payment month if registering to file FCWT on a monthly basis 5 Compulsory Social/ The last day of the month Health/ Unemployment Insurance 6 Stamp Duty Upon occurrence 7 Export Duty Upon occurrence 8 Import Duty Upon occurrence 50 shall be applicable. 12-month operation within a 50 billion or less, otherwise the monthly basis or quarterly basis. 27
CORPORATE INCOME TAX (CIT) TAXPAYERS 1 2 Foreign Vietnam- enterprises with or incorporated without Permanent enterprises Establishment (PE) Service Branches/Agents establishment Plants/ Construction sites Others TAX CALCULATION CIT PAYABLE = TAX RATE X ASSESSABLE INCOME Assessable Total Deductible Other Carried Income Revenue Expenses Income Loss 1. (Total revenue – Deductible expenses) is considered an income from main business activities. Such income is entitled to CIT incentives, if any. 2. Normally, other forms of income are not entitled to CIT incentives, and thus, shall be subject to the standard CIT rate of 20 per cent. Other income includes gains from foreign exchange revaluation, income from disposal of fixed assets, interest income, ect. not related to main business. Tax Rates From 1 January 2016, the standard CIT rate is 20 per cent. The CIT rate for enterprises operating in exploration and mining of petroleum, gas, and other rare and precious natural resources shall range from 32 per cent to 50 per cent, depending on the project locations and conditions. 28 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS TAX INCENTIVES COMMENCEMENT RULE Preferential tax rate Generally, preferential tax rate is applicable from the first revenue-generation year; except high-tech enterprises or projects. Tax holiday Generally, tax holiday is available from the first profit-making year or the fourth revenue-generation year, where applicable, except high-tech enterprises. BY LOCATION CIT INCENTIVES ACTIVITIES PREFERENTIAL TAX RATE TAX HOLIDAY With especiallly difficult 10% for 15 years • 4 years of tax exemption; socio-economic conditions and • Economic Zones • 50% reduction for the next • High-tech Zones, including 9 years concentrated information technology parks established under the Prime Minister’s decision • With difficult socio-economic 17% for 10 years • 2 years of tax exemption; conditions and • 50% reduction for the next 4 years • Industrial Parks (which are not Not applicable • 2 years of tax exemption; located in the favorable and socio-economic locations) • 50% reduction for the next 4 years 29
BY SECTOR The current incentive scheme is applicable for sectors that are prioritized for investment under the Government’s development policies. CIT INCENTIVES ACTIVITIES (for example) PREFERENTIAL TAX RATE TAX HOLIDAY • High-tech enterprises (including 10% for 15 years • 4 years of tax science and technology enterprises); exemption; and research, application, and incubation of • 50% reduction for hi- technology projects the next 9 years • Environmental protection • Investment for infrastructure development (water plant, power, road, port, etc.) • Software production • Supporting industries • Socialised projects in regions with 10% for whole project’s • 4 years of tax difficult/especially difficult duration exemption; and socio-economic conditions • 50% reduction for the next 9 years • Socialised project not located in 10% for whole project’s • 4 years of tax duration exemption; and economic regions • 50% reduction for the next 5 years • Farming, husbandry, processing of 10% for whole project’s • Tax exemption and duration reduction under regions; forestry in difficult regions; incentives for location production of plant varieties, animal (if applicable) breeds; production of salt; preservation of agriculture products, aquaculture products and foods, etc. 30 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS CIT INCENTIVES ACTIVITIES (for example) PREFERENTIAL TAX RATE TAX HOLIDAY • Farming, husbandry, processing of 15% for whole project’s agriculture and aquaculture products duration • Manufacturing of steel, energy saving 17% for 10 years products, machinery and equipment serving agriculture, forestry, fisheries and salt production, traditional crafts, etc. BY BUSINESS SCALE Investment incentives are granted to large projects manufacturing projects (excluding those in product manufacture subject to special sales tax or those in mineral resources exploitation) having either: 1. Total capital of VND 6,000 billion or more, disbursed within 3 years since being licensed with: - Minimum annual revenue of VND 10,000 billion by the 4th year of revenue generation at the latest; or - Regularly employing more than 3,000 employees by the 4th year of operation at the latest. 2. Total capital of VND 12,000 billion or more, disbursed within 5 years since being licensed and using technologies being evaluated under the Law on Hi-technology, and the Law on Science and Technology. CIT INCENTIVES ACTIVITIES PREFERENTIAL TAX RATE TAX HOLIDAY • VND 6,000 billion capital project (1) 10% for 15 years • 4 years of tax exemption; and • 50% reduction in tax • VND 12,000 billion capital project (2) for the next 9 years 31
DEDUCTIBLE EXPENSES An expense might be deductible for CIT purpose if the following conditions are met: 1 2 Actually incurred and Supported by proper relevant to the company’s documents business activities 4 Payments above VND 20 Not in the list of 3 million must be supported non-deductible expenses by bank payment vouchers or deemed as made via banks In addition, payments above VND 20 cap of one-month average monthly salary; million must be supported by bank • Costs of raw materials, supplies, payment vouchers (or deemed as fuel, power and goods exceeding the made via bank) to be deductible. reasonable consumption levels as stipulated by the Government; NON-DEDUCTIBLE EXPENSES • Interest on loans from non-economic Below are notable examples of and non-credit organizations exceeding non-deductible expenses: 1.5 times of the interest rate announced • Depreciation expenses of fixed by the State Bank of Vietnam; assets not in accordance with • Interest expenses exceeding 20% prevailing regulations, i.e. (i) not for EBITDA for enterprises having related- business purpose; (ii) not supported by proper documentation; and (iii) party transactions; exceeding the regulated depreciation • Interests on loans corresponding to rates; the portion of charter capital not yet • Labor expenses recorded but not contributed in accordance with registered actually paid or not stipulated with contribution schedule; clear conditions and amounts under • Periodical accrued expenses not paid or labor contracts, collective labor not fully paid at the end of the period; agreements or company’s financial policies; losses, inventory devaluation, bad debts, product warranties or 32 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS construction works, vocational risks activities. Losses from the transfer not in accordance with the prevailing of real estate, investment projects, regulations; rights to participate in investment • Unrealized foreign exchange losses projects (except for mineral due to the year-end revaluation of foreign exploitation and exploration currency items other than account payables; from other business activities. • Overhead costs allocated to the Permanent Establishment (PE) by foreign TAX DECLARATION AND PAYMENT companies exceeding the amount Enterprises are not required to determined based on the revenue-based submit the quarterly CIT declaration allocation ratio; returns. However, provisional • Contributions to voluntary pension payments are still compulsory and funds and purchase of voluntary pension will be calculated and settled based insurance, life insurance for employees on best estimation. In case the exceeding VND 3 million/person/month; payment interests, etc.; the sum of provisional CIT payments • Donations other than certain donation is more than 20 per cent of the CIT contributions for education, health care, natural disaster or building charitable excess of 20 per cent shall be subject homes, etc.; to late tax payment interest. • Certain expenses related to the issuance, purchase and sale of shares. prepared and submitted to the tax authorities within 90 days from the LOSSES Tax loss is carried forward within tax liabilities arising from the tax a maximum period of 5 years after the loss-making year. The tax loss payments made quarterly shall generated from January 2009 be settled within 90 days from the must be carried forward consecutively end of fiscal year. even during the tax exemption period. The standard tax year is the calendar Carry-back of tax loss is not allowed. year. However, enterprises are able to Losses from incentive business adopt a tax year, i.e. fiscal year, which is different from the calendar year income from non- incentive upon notification to tax authorities. 33
PERSONAL INCOME TAX (PIT) OVERVIEW TAXPAYER TAX RESIDENT TAX NON-RESIDENT Taxable Worldwide income Vietnam-sourced income income Tax rate on Progressive rate (5~35%) Flat rate (20%) employment income Tax calculation Assessable Income = Taxable Income Assessable Income = Taxable - Deductions Income Deduction Personal deduction No deduction is claimed Dependent deduction Compulsory and (capped) voluntary insurance contribution Charitable or humanitarian donation Tax relief Foreign tax credit is allowed on the foreign- Tax treaty exemption may be sourced income applicable if conditions are met TAX RESIDENCY An individual is a tax resident if he/she meets one of the following conditions: • Residing in Vietnam for 183 days or more in 12 consecutive months from Present in the first arrival date or in a calendar Vietnam for year; 183 days or • Having a registered permanent more residence in Vietnam as recorded by a temporary/permanent residence card; • Having rented a house in Vietnam House lease Permanent/ contract of 183 Temporary with a term of 183 days or more days or more residence card within a tax year. Note: An individual having registered address or rented house over 183 days but residing less than 183 days in Vietnam may still be a tax resident if being unable to prove residency of another country. 34 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS Tax residents are subject to PIT in remuneration and fringe benefits Vietnam on their world-wide income whether in cash or in kind. However, regardless of where such income is certain income items are not subject to paid, earned or charged. Worldwide tax, typically: employment income is subject to tax at • Once-off relocation allowances for progressive tax rates ranging from 5 example, paid to foreigners first time per cent to 35 per cent depending on comes to work in Vietnam; or Vietnamese income level. citizens residing overseas return to Individuals who do not satisfy any of work in Vietnam; the above condition are classified as • Transportation allowance: from non-residents and subject to tax only home to work and vice versa under the on Vietnam-sourced income. The rate Company’s policy; applicable to tax non-residents’ • Wedding and funeral allowances Vietnam- sourced employment income under the Company’s policy and being is currently fixed at 20 per cent. capped at one-month average monthly Both residents and non-residents are salary; also subject to PIT in Vietnam on • Airfare in kind one round trip per incomes of non-employment nature year for employee to travel back to which are taxed at different flat rates. home country; • Tuition fee in kind for children to TAX YEAR study from nursery to high school level The Vietnamese standard PIT reporting at host country; period is the calendar year. For foreign • Insurance premium: voluntary individual, the fist tax year will be the non-accumulative insurance for health 12-consecutive-month-period from the & death; first arrival date in Vietnam in case the • Membership/ healthcare/ entertainment individual is present in Vietnam for in kind & non-identified beneficiary; less than 183 days during the first • Supports for cure of fatal diseases to calendar year. From the second year, employees (and close family members); the tax year will be the calendar year. • Per-diem: Fully exempted if paid under the Company’s policy; EMPLOYMENT INCOME • Housing allowance: In excess of 15 Employment income includes per cent of total taxable income; salaries and wages, and all forms of 35
• Uniform allowance in cash below TAX RELIEF VND 5 million/year or in kind; FOREIGN TAX CREDIT • Overtime in excess of the normal rate. A tax resident is entitled to claim for Foreign Tax Credit (i.e. the NON-EMPLOYMENT INCOME amount of tax paid overseas Non-employment income includes according to overseas regulations) income from business, capital against their Vietnamese PIT on the investment, inheritance, gifts, foreign-sourced income; however, the prize winnings, transfer of capital, creditable amount shall not exceed the transfer of real estate, sale of shares/ Vietnamese PIT payable according to securities, royalties, franchising, copyrights, etc. which are subject to income arising overseas. TAX TREATY RELIEF TAX DEDUCTIONS A tax non-resident may enjoy PIT Tax residents of Vietnam are entitled to exemption in Vietnam via tax treaty the following deductions from taxable application if certain conditions income: under the treaty are met. To enjoy • A personal deduction of VND 9 million per month; are required. spouse, children and other eligible persons including parents in the amount TAX RATES of VND 3.6 million per dependent per Employment Income month (provided that certain conditions are met); MONTHLY TAX RATE ASSESSABLE • Eligible charitable or humanitarian NON- INCOME RESIDENTS donations; (million VND) RESIDENTS • Compulsory social insurance, Up to 5 5% health insurance and unemployment Over 5 to 10 10% insurance paid by employees; and Over 10 to 18 15% • Contribution to private pension 20% Over 18 to 32 20% fund made by the employer and the Over 32 to 52 25% employee capped at VND 1 million Over 52 to 80 30% per month pursuant to the Ministry of Finance’s guidance. Over 80 35% 36 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
Non-Employment Income (applicable to both residents & non-residents) NON-EMPLOYMENT TAX RATE INCOME 1% - 5% on revenue Business Income *Depending on type of business Capital investment, i.e. interest, dividends 5% (except for bank interest) 20% on net gains for tax resident; 0.1% on Capital transfer sales proceeds for non-resident Securities / JSC share 0.1% on sales transfer proceeds Real estate transfer 2% on sales proceeds Income from winning prizes (in excess of 10% VND 10 million) Income from copyright (in excess of VND 10 5% million) Income from royalty/ franchising (in excess 5% of VND 10 million) Income from gifts / inheritances 10% (in excess of VND 10 million) 37
TAX DECLARATION AND PAYMENT Each individual taxpayer must register for a personal tax code prior to the time limit for his first PIT filing. In case the employer makes tax registration for employees earning income from salaries or wages and tax registration for employees’ dependents, the registration deadline shall be within 10 working days before the submission of annual PIT finalization return. Monthly TYPE OF INCOME DEADLINE Employment income received from Vietnamese employers 20th day of the following month ′s return) Quarterly Employment income received from Vietnamese employers 30th day of the following quarter ′s return) Employment income received via Company′s return) 10th day from the date of Non-employment income arising income TAX FINALIZATION Tax residents are required to file the PIT finalization return and settle outstanding PIT liabilities within 90 days from the end of the tax year. Residents foreign expatriates terminating their Vietnam assignment must file PIT finalization dossiers prior to their departure dates (or within 45 days from departure dates in case of authorization following a recent specific guidance) 38 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS VALUE ADDED TAX (VAT) SCOPE OF APPLICATION VAT is imposed on goods and services used for production, trading and consumption in Vietnam (including those purchased from overseas organizations and individuals). TAX RATES There are three types of VAT treatment: non-taxable items; items not required to declare VAT and taxable items (at 0 per cent, 5 per cent and 10 per cent VAT rate). Below are some notable cases: NON-TAXABLE • Land use rights; • Insurance related to human; • Loan, credit services; • Education and vocational training according to prevailing regulations; • Medical services; • Machinery and equipment not locally produced, imported for some specific purpose; • Temporarily imported goods; • Capital transfer transactions between non-tariff zones and overseas; • Intellectual property rights, software (except exported software); • Unprocessed or semi-processed products of cultivation, agriculture, aquaculture; animal breeding stock, seedlings, salt products, etc.; • Imported goods/services for humanitarian aid; • Exported products directly processed from main materials being natural resources and/ or minerals whose total value plus energy cost makes up at least 51% of the prime cost. 39
DECLARATION NOT REQUIRED • Compensation, financial income; • Project transfer; • Transfer of assets within a company and dependent units; • Capital contribution by assets; • Commission for some agent services. TAXABLE Export goods and services; 0% International transportation; Aviation and maritime services provided either directly for foreign entities or through agents Clean water, pesticide, services for digging, embanking, 5% dredging of canals, agricultural machinery and equipment, sugar and by-products, medical equipment, teaching aids, artistic, sports activities, etc. 10% Standard VAT rate, applicable to goods and services other than those mentioned above 40
D TAXATION AND CUSTOMS TAX CALCULATION CREDIT METHOD For general business activities, VAT The credit method is adopted by liabilities must be paid to local tax enterprises maintaining complete authorities where general business books of accounts, invoices and activities take place while for documents in accordance with imported goods, VAT liabilities will relevant regulations, including: be collected by customs authorities • Enterprises with annual revenue upon importation. subject to VAT of more than VND 1 billion; There are two methods for VAT • Enterprises in other cases who declaration: Credit method and voluntarily register for VAT declaration Direct method. under credit method. • Credit method: VAT liabilities are calculated by offsetting input VAT VAT calculation under credit method: with output VAT; • Direct method: VAT liabilities for VAT OUTPUT INPUT specific goods and services are PAYABLE VAT VAT calculated by using the deemed VAT rates. OF WHICH Output VAT shall be equal to the total VAT on goods or services sold as stated in the VAT invoice. Input VAT shall be: - VAT amount as recorded in all VAT invoices for the purchase of goods or services; - VAT amount stated on receipts for VAT payment on imported goods; - VAT amount stated on receipts for VAT payment on behalf of foreign contractors. In order to claim deductible input VAT, taxpayers must obtain the following documents for each type of goods/services purchased: GOODS/SERVICES PAYMENTS ON IMPORTED LOCALLY BEHALF OF FOREIGN GOODS PURCHASED CONTRACTORS VAT invoice VAT payment receipt (*) Non-cash payment voucher Customs returns (*) Non-cash payment vouchers are only required for payments of VND 20 million or more (inclusive of VAT). 41
In case the credit method is applied, taxpayers should note the following principles regarding credits: VAT OUTPUT CORRESPONDING INPUT Non-taxable Nil Not eligible for credit Declaration not required Nil May be credited Taxable (0%) Nil May be credited Taxable (5%, 10%) Yes May be credited If goods/services/fixed assets are used for the production/trading of both taxable good/services and non-taxable goods/services, then only the input VAT of goods/services/fixed assets used for the production/trading of taxable goods may be used for credit. Taxpayers must separate the credit-eligible input VAT from non-credit-eligible inputs. Otherwise, the input VAT shall be credited based on the ratio of the revenue of goods/services subject to VAT and not required for VAT declaration to the total revenue from sales of goods/services. DIRECT METHOD The direct method is adopted in the following cases: • Enterprises with annual revenue subject to VAT of less than VND 1 billion unless they voluntarily register for credit method; • Enterprises not maintaining proper books of accounts and foreign organizations/ individuals carrying out business activities not regulated under the Law on Investment; • Business individuals and households; • Enterprises engaging in trading in gold, silver and precious stones. VAT calculation under direct method: VAT PAYABLE REVENUE VAT RATE OF WHICH, THE • 1% Distribution; supply of goods APPLICABLE VAT RATES • 5% Services; construction excluding supply of materials SHALL BE: • 3% Manufacturing; transportation; services attached to the supply of goods; construction, including supply of materials • 2% Other cases 42 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS For those enterprises engaging in the business of gold, silver and precious stones, VAT payable shall be calculated as 10% of the added value. The value added of gold, silver, and precious stones equals their selling price minus their purchase price which are recorded by proper VAT invoices or payment receipts/ vouchers. TAX DECLARATION AND PAYMENT Monthly VAT declaration shall be applied in most cases and is to be filed by the 20th day of the following month. Quarterly VAT declaration is applicable to taxpayers with total turnover from sales of goods/ services of the preceding year not exceeding VND 50 billion. The deadline for quarterly VAT filing is by the 30th of the following quarter. Where the taxpayer are eligible for quarterly VAT declaration wish to instead file VAT monthly, they shall submit a notification to tax authorities not later than the deadline for VAT declaration in the first month of the tax year. VAT finalization is not required. TAX REFUND From 1 July 2016, taxpayers can only claim VAT refund from tax authorities in the following common cases: • New projects of taxpayers who adopt the VAT-deduction method that are in the pre-operation investment period, and with a total accumulated input VAT exceeding VND 300 million (some exceptions may apply); f local sales) with an amount exceeding VND 300 million (but capped at 10% of export revenue), except: goods imported then re-exported; Customs Law. From 1 February 2018 146/2017/ND-CP in addition to the above, business establishments importing and then exporting goods into VAT exceeding VND 300 million are re-allowed to enjoy VAT refund. E-Invoice Currently, taxpayers can choose between paper invoices or e-invoices. However, e-invoices must be used for all enterprises from 01 November 2020. 43
FOREIGN CONTRACTOR WITHHOLDING TAX (FCWT) TAXPAYERS FCWT is applicable to foreign organizations/individuals who conduct business or earn income in Vietnam on the basis of a contract/agreement with (i) a Vietnamese party (as a main foreign contractor); or (ii) another foreign contractor to implement part of the contractual scope of works (as a foreign sub-contractor). FCWT is a tax collection mechanism that normally comprises both CIT and VAT, but may also include PIT for payments to foreign individuals. SCOPE OF APPLICATION SUBJECT TO FCWT NOT SUBJECT TO FCWT Services provided or consumed Services provided and consumed Services inside Vietnam outside Vietnam Supply of goods accompanied by Supply of goods not accompanied by services services and the delivery point Goods Supply of goods in which the delivery is overseas or outside border gate of point is inside Vietnam Vietnam Construction & installation Interest Royalties Others Trademarks Penalty/compensation Income from transportation activities Security transfer IMPORTANT NOTE There is no dividend withholding tax in Vietnam on corporate shareholders. TAX DECLARATION There are three methods for FCWT declaration including: (i) Deemed method; (ii) Hybrid method; and (iii) Declaration method. While the Deemed method can be applied by foreign contractors without any specific conditions (and is the most common method, which can be applied), the Hybrid method and Declaration method require foreign contractors to satisfy the 44 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS following conditions: • Maintaining a contract duration of 183 days or more; • Applying the Vietnamese Accounting System. NO. CRITERIA DEEMED METHOD DECLARATION METHOD HYBRID METHOD 1 Filing • Vietnamese Party • Foreign Contractor • Foreign Contractor responsibility 2 Compliance timeline VAT declaration • 10 days from • Monthly • Monthly payment date; or • Monthly CIT declaration • 10 days from • Quarterly • 10 days from payment date; or payment date; or • Monthly • Monthly Finalization • 45 days from • 90 days from the end of • 45 days from contract termination contract termination date • 45 days from contract date, applied for CIT termination date 3 Tax calculation VAT • VAT = Taxable • VAT = Output VAT – • VAT = Output VAT – income x deemed Input VAT Input VAT rate CIT • CIT = Taxable • CIT = Taxable income x • CIT = Taxable income x deemed CIT rate income x deemed rate rate 4 Auditing • No • Not compulsory • Not compulsory • Tax liability would Revenue/ • No detailed requirements to 5 be withheld before requirement remittance before remittance 45
TAX RATES In case of the deemed method, the following rates shall be applied for some notable cases: ACTIVITIES VAT RATE CIT RATE Supply of goods in Vietnam or Exempt 1% associated with services rendered in Vietnam (including in-country export- import, distribution of goods in Vietnam or delivery of goods where the seller bears risk relating to the goods in Vietnam) Services 5% 5% Supply of goods attached to services where the value is separated: Goods portion Exempt (for goods) 1% (for goods) Services portion 5% (for services) 5% (for services) Supply of goods and some 3% 2% services where value is not separated (*) Construction 3% or 5% 2% Loan interest Exempt 5% Income from royalties Risk of being taxed at 5% 10% Other cases where value is not Highest rate applicable Highest rate applicable separated 46 Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS DOUBLE TAXATION AVOIDANCE AGREEMENT Vietnam has a solid tax treaty language and notarized, along with network, with most treaties following various Vietnamese Government the OECD - model treaty. Treaties forms. In the case the statutory generally provide for relief from deadline above is missed, taxpayers double taxation on all types of can still retain their right to claim tax income, limit the taxation by one treaty benefits as long as the notification country of companies’ residents in the is submitted within 3 year from the other and protect companies’ tax payment due date. residents in one country from The documentation can be submitted discriminatory taxation in the other. before the payment is made and Vietnam’s treaties generally contain Vietnamese tax is withheld, or OECD-compliant exchange of alternatively, after tax has been information provisions. withheld, in which case, the applicant Tax relief under Double Taxation would be seeking a tax refund. Avoidance Agreement (DTA) As of August 2019, Vietnam has signed application is not automatically DTA agreements with 80 countries and granted. Instead, foreign taxpayers territories around the world. The table are required to submit certain below contains the withholding tax notification dossiers to Vietnamese rates that apply to dividend, interest tax authorities within 15 days prior to and royalty payments by Vietnamese the tax payment deadline. companies to non-residents under Notification dossiers normally include tax residence confirmation, which a number of countries. must be translated into the Vietnamese 47
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